FARM LAWS PULL BACK - WHAT SHOULD THE ECONOMY EXPECT?



After mounting a vigorous defense for over a year, Prime Minister Narendra Modi's decision to revoke the three disputed farm laws surprised both his critics and followers. This article will be analyzing the effects this movie is going to have on subsequent economic reforms and the economy in general.

If you somehow ended up on an island with no internet or tv or newspaper, and are not aware of what I’m talking about let me help you get up to date with it.


FARM LAWS


The Indian Agriculture Acts of 2020, also known as the Farm Bills, were three acts introduced by the Indian Parliament in September 2020. The bills were adopted by the Lok Sabha on September 17, 2020, and by the Rajya Sabha on September 20, 2020. On September 27, 2020, India's President, Ram Nath Kovind, granted his approval.

The first of the three was the 'Farmers’ Produce Trade and Commerce (Promotion and Facilitation)' Ordinance, which was heavily criticized due to its exclusion of existing mandis established under Agricultural Produce Market Committee Acts from the definition of Trade Area. While this gave the farmers the freedom to trade however they want, it also confined APMC mandis to their physical boundaries heavily incentivizing big corporates, which in turn affected Market fee, and put the playing field in favor of the corporates, who would not have only increased the price margin to drive the mandis to collapse but would have also reduced the prices for the farmers post the collapse.

The 'Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services' was the second ordinance. While it did seem to ensure buy-back provisions with sponsors for the benefit of farmers. There were several apprehensions regarding the nature of the agreements which will be initiated, wherein farmers would have had to deal with huge corporations, with no prior knowledge and a potential possibility of heavy exploitation in case of demands and price negotiations. So while it was ensuring that the farmers' produce would be sold, it was not ensuring any effective mechanism to make that sale exploitation proof.

The third Ordinance related to amendments introduced in the Essential Commodities Act, 1955. While this one ensured limitless storage and movement, liberalization for private investors, protection of farmers and consumers, and also extraordinary investments, it also opened up the possibility of hoarding of Commodities, increase in black market operations, market price manipulations, and quoting higher than the fixed price. Mainly because many phrases used in the ordinance, like ‘extraordinary price rise’ or ‘natural calamity of grave nature', were open to severe interpretation.

The laws had triggered massive outrage and demonstrations by the farming and agricultural community, which gained traction in September 2020. The Supreme Court halted the execution of these farm regulations on January 12, 2021, and created a commission to investigate farmer issues relating to agricultural legislation. Narendra Modi, Prime Minister of India, said in a televised address on November 19, 2021, that his administration will repeal the legislation during the forthcoming parliamentary session in December.

Now that you are up to date with the issue let jump into the issue at hand.


THE PULL BACK


The prime minister in his address made on 19th November 2021, declared that, in the Parliament session that begins this month, the government will initiate the constitutional process to repeal these three agricultural laws. The farmers union or the Samyukt Kisan Morcha welcomed this statement however they have stated that they are protesting not just the repeal of the three laws in question, but also for a formal guarantee of remunerative pricing for all agricultural products, all agricultural produce, and all farmers. This vital requirement of farmers is still unfulfilled.


EFFECT ON AGRICULTURAL SECTOR


The repeal does not affect the working of agricultural production, which will continue on its current course, as it has over the previous decade or so. In the first seven years of the Modi government, agri-GDP growth averaged 3.5 percent per year, the same as in the first seven years of the Manmohan Singh government. And one may anticipate it to remain in this range for the foreseeable future—a little higher or lower depending on the rainfall pattern of the year.

Cropping patterns would continue lopsided in favor of rice and wheat, with the Food Corporation of India holding large inventories of grains. The food subsidy would continue to bulge due to massive leakages. The groundwater table in the northwest states will continue to recede, and methane and nitrous oxide will continue to pollute the ecosystem.

Unless the proposed committee produces more substantial improvements, agri-markets will remain rigged, and the potential advantages of suggested agricultural reforms will stay elusive for some time.


PULLBACK OR SETBACK?


Many critics argue that the pullback might just have opened doors to major setbacks for the future of agricultural reforms in India. India as a country, has been in need of agricultural reforms for a long time. After waiting for decades, the sector finally had one small stroke of growth. But the hopes for that were immediately crushed, when the laws were introduced.

You see, the laws were rushed and in a bid to accommodate everyone, were left too open to interpretation, so much so that it was hard to tell if there was any benefit of these policies. So even though there was consensus among the people and critics alike that there was a desperate need for agricultural reforms, they also agreed that the farm laws were probably a bad decision.

To top it all off, it has been alleged that the move to initiate these repeals was politically motivated and not something that was inspired out of concerns for the economy or keeping in mind the position of the market or the condition of the economy. The move was initiated to secure votes of people who don't want the repeal. To be more specific, the tailoring of the move was specifically for the upcoming elections in UP and Punjab - the two states which have the highest concentration in these farmer protests.

It is a fact that the farmers’ unions of these states are highly opposed to the reforms, but that is not the case everywhere. In fact, many farming communities have come out in support of initiating agricultural reforms. The Shetkari Sanghatana in Maharashtra has been vocal in support of the changes and opposition to the Punjab farmers. Similarly, P. Chengal Reddy, president of the Andhra Pradesh Federation of Farm Associations, has stated that improvements are desired. But many of them feel that the farm laws were not exactly the best decision when it came to development or reforms.

The problem with these legislations is that, had they been a little more explanatory and easy to understand, and were clear enough to solve the public’s doubts, they had the potential to change the way agriculture worked, to the advantage of farmers who are not wealthy or have large landholdings. The lawmakers’ shortcoming of not holding more comprehensive and explanatory discussions and rushing into introducing laws that were almost too open to interpretation, pushed the pause button on the future of major agricultural reforms which could have benefitted the small or farmless farmers.


THE EFFECTS OF THEIR REPEAL ON THE ECONOMY


Their repeal will now trigger a bunch of economic consequences. The first one is that the ones leading the opposition for these much-needed reforms will not be content and will in turn flip the onus on taxpayers once more, putting even more burden on the newly recovered economy.

Wealthy farmers, dealers, and middlemen, who have benefited the most from minimum support prices and want the current system to remain the way it is, will now have an excuse to seek larger returns, since the MSP is now hard-coded into legislation, with an inflation-indexed or higher return guaranteed for products that would be substantially cheaper to the nation if imported, which will again burden the small or landless farmers and the tax-paying middle class.

As a result, the burden on the economy would increase so much that the economic changes that are sorely required to boost development will likely be slowed. The current system not only gives the middlemen and wealthy farmers a chance to earn more profit while taking away the hard-earned money of the small farmers, but it also essentially weeds out the process of competition from the market and pushes it towards a more welfare-based market.

This is a move that India for one cannot afford to continue, since not only robs off people’s hard-earned tax money. But also, slows down the growth of the agri-sector. It is common knowledge that agriculture is a huge part of our economy and thus is responsible for a lot of our financial profit. India being a developing country, is in desperate need of major development policies especially post covid, if one of the biggest sectors of the economy is pushed to become a welfare market, distributing benefits without returns, India might even end up losing the profits it does earn.


LESSONS LEARNED


While there is bad news, there is also good news. The good news is that it might just teach the lawmakers some valuable lessons. The most crucial aspect is that the economic reform process must be more collaborative, transparent, and better conveyed to prospective beneficiaries. This inclusion is at the heart of India's democratic functioning. Given our society's contentious character, it takes time and tolerance to do so. The nature of India's agriculture problem varies according to states and regions.

Agriculture is highly intricate and not consistent between states, which is why agricultural policy must be tailored to the local environment, which is why agriculture is a state subject under the Constitution. The next step should be for state governments to be able to develop policies that are environmentally responsive to their needs.

If properly managed, the consultation process may encompass a wide range of food, nutrition, agricultural, and environmental problems. Understanding farmer difficulties in diverse agro-climatic zones, as well as the challenges encountered by resource-poor farmers and poorer customers, might serve as the foundation for such a dialogue. There are enough people prepared to work together to find a fair and practical answer.

This could include developing a new agricultural architecture based on the following principles: food and nutrition for our people, i.e., healthy and varied diets; economic sustainability and well-being of farmers, soil, water, and other ecological aspects, and improved institutional support. A decentralized strategy centered on giving adequate space for local solutions, implementation, and creativity is required for such an architecture. The new policy framework will be able to establish defined objectives and priorities, as well as relate all incentives and disincentives to quantifiable outcomes based on these basic objectives.


REFERENCES

FURTHER READING


Written by Shubhi Pandey (shubhi221199@gmail.com)

Edited by Mehak Vohra